OMC Earnings Under Pressure Due to Q1FY27 Under-Recoveries

Oil Marketing Companies (OMCs) face a challenging road ahead as profitability is expected to remain under significant pressure through FY27. According to a recent research report by Prabhudas Lilladher (PL), upcoming under-recoveries and the potential rollback of excise duty cuts are set to weigh heavily on the sector's margins.

The Impact of Under-Recoveries in Q1FY27

Despite a recent improvement in sentiment following Brent crude dropping below USD 80/bbl due to the US-Iran ceasefire, the outlook for Q1FY27 remains grim. The brokerage firm anticipates sharp hits to profitability driven by significant under-recoveries.

Specifically, the report expects under-recoveries of ₹7/ltr for Motor Spirit (MS) and ₹10/ltr for High-Speed Diesel (HSD) in Q1FY27. These estimates take into account a ₹10/ltr excise cut and capped cracks of USD 10/bbl for MS and USD 15/bbl for HSD.

LPG is identified as the most critical pain point for OMCs. Losses for LPG are estimated to reach approximately ₹500/cylinder in Q1FY27. This follows a period of high volatility where, according to Q4FY26 commentary, LPG under-recoveries swung from ~₹170/cylinder in April 2026 to a staggering range of ₹610-₹670/cylinder in May 2026. Adding to this strain, Saudi CP prices for Q1FY27 are projected to rise by 47% quarter-on-quarter due to supply constraints stemming from West Asia disruptions.

The Excise Duty Rollback Risk

A major overhang for the sector is the potential government decision to roll back the ₹10/ltr excise duty cut. This cut was originally introduced as a crisis management measure rather than a permanent fiscal policy.

As crude prices moderate and retail price hikes are implemented, the government may seek to reclaim revenue. Currently, the government bears a revenue impact of approximately ₹1,700 billion annually due to this excise cut. While Prabhudas Lilladher expects any rollback to happen in a phased manner, the mere possibility remains a key pressure point for OMC earnings.

Crude Oil Volatility and Inventory Rebuilding

The trajectory of crude oil prices remains a complex variable for the OMCs. While the geopolitical easing between the US and Iran could lead to a near-term decline in prices—especially if normalcy is restored at the Strait of Hormuz—long-term volatility is expected.

証券会社は、追加的な需要によって原油価格が下支えされる可能性が高いと指摘しています。近年の紛争時に活用された戦略石油備蓄（SPR）および一般在庫を各国が補充する動きを見せるなか、その結果として生じる需要が、原油価格の持続的な下落傾向を抑制する可能性が高いと考えられます。このような在庫補充のサイクルは、供給制約と相まって、業界にとってマージンの圧縮が継続的な課題となることを示唆しています。

主なポイント

  • LPGが大きな重石に: LPGの回収不足は2027年度第1四半期に1ボンベあたり約500ルピーに達すると予想されており、サウジのCP価格の上昇がこの問題をさらに深刻化させています。
  • 物品税の不確実性: 1リットルあたり10ルピーの物品税減税が段階的に撤回される可能性は、OMCの最終利益にとって引き続き重大なリスクとなっています。
  • 原油価格の動向: 地政学的リスクの緩和により一時的に価格が下落する可能性はあるものの、世界的な在庫補充が需要を押し上げ、価格のボラティリティを維持する可能性が高いでしょう。